PayPal Faces Antitrust Class Action Claiming Its Rules Inflate Online Prices
A federal judge in California has narrowed a proposed class action accusing PayPal of using unfair rules that raise prices for online shoppers, giving consumers one final chance to revise their claims.
The lawsuit was filed by a group of online buyers who say PayPal’s merchant rules prevent retailers from offering discounts when customers use cheaper payment methods. According to the complaint, PayPal’s agreements prevent merchants from adding a fee to cover PayPal transactions or encouraging buyers to choose other options that cost less to process. The buyers claim these restrictions limit competition among payment platforms and cause prices to rise across e-commerce sites.
In a ruling issued November 5, 2025, Judge Jeffrey S. White of the U.S. District Court for the Northern District of California said the allegations were not strong enough to move forward under federal antitrust law, which is meant to keep markets fair and prevent companies from using their influence to block competition.
While the court agreed that online retail can be treated as a separate market from in-store shopping, it found the complaint did not show that PayPal has enough control, known as “market power,” to affect overall prices. Market power means a company can raise prices without losing customers because there are few other options.
The Sherman Antitrust Act is a federal law that protects competition by banning business practices that unfairly restrict trade or raise prices. It was one of the first major U.S. laws created to keep markets open and prevent companies from forming monopolies or working together to fix prices. It is often used when a business is accused of limiting consumer choice or blocking rivals.
In this case, the buyers say PayPal’s merchant rules limit fair competition by stopping retailers from offering discounts for using cheaper payment methods. They argue that if merchants could promote those options, shoppers would pay less overall. The judge did not reject that argument but said the lawsuit lacked enough facts to connect PayPal’s policies directly to higher prices.
The dispute focuses on PayPal’s “anti-steering” provisions, which restrict how merchants handle pricing for different payment methods. Economists refer to these as “most favored nation” clauses, meaning agreements that prevent one company from giving better deals to another. For example, a store that signs such a contract cannot offer a lower price to customers who pay with another service.
In practice, these rules can discourage merchants from offering discounts for cheaper payment systems. The judge found that while this could make sense in theory, there was not enough proof that PayPal’s rules actually increased what consumers pay.
The court also looked at whether the buyers could show they were directly affected by PayPal’s practices, a requirement known as “antitrust standing.” This rule ensures that only people who were clearly harmed by a company’s actions can bring an antitrust claim. Judge White found that any higher prices the buyers paid were too indirect because many other factors influence retail pricing. Without a clear link between PayPal’s fees and the cost of goods, the harm was too uncertain to qualify as an antitrust injury.
Based on those findings, the court dismissed the main claim under the Sherman Act but allowed the buyers to file an amended complaint by December 12, 2025. The related state law claims were also dismissed for now, as the court said the filing did not include enough detail to show that the lawsuit qualifies for federal jurisdiction under the Class Action Fairness Act, a law that allows large, multi-state lawsuits to be heard in federal court if certain conditions are met.
PayPal must respond by January 9, 2026, if an amended complaint is filed.
